Debt is closely tied to savings - the more you do the first, the less you have left over for the latter. Conversely, the more savings you have, the less you (usually) need or want to borrow. Since you’re paying out interest by borrowing, and (in some cases) simultaneously not getting interest by saving instead, you get a double financial whammy.
If you think of saving money to buy the things you want rather than using credit cards you can save a lot of money each month. But it is up to you. How important is it to have what you want right away, versus not having to pay high interest charges?
The bigger concern is not the purchase of isolated things, but the matter of saving for your future. An IRA (Individual Retirement Account) will help you put away money for your future. What are the negatives and positives of this?
The money you save in an IRA is a tax deduction, so there are tax benefits. Also, as you save money you benefit from compounding interest on your savings. A look at an online calculator will give you a good idea of how your savings can grow as interest compounds.
The tax benefit is that you are not taxed on the money until the future when you use it. Normally your tax rate will be much lower and you will pay less taxes on the money than if it was taxed at the time you earned it. This is not true in every case, but with the majority of people it has proven to be the case.
There are more variations today on basic IRAs than there were 20 years ago when the idea first became a reality. But the basics remain true. You can still put up to $2,000 per year tax free into the account.
One new option is the Roth IRA. It has some flexibility in that if you are 59+ years of age and have had your account for at least 5 years you can make tax free withdrawals from your account. Also money can be drawn if you are purchasing your first home.
The 401k (named after a provision in the 1978 Internal Revenue Code) is also a very popular long term savings program. Employers put tax-deferred money into an account for their employees. No income tax is paid on the funds until they are taken out of the account.
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